As I noted the other day, it's been a lot more active on the deal front suddenly. We talked to Dan Primack of Axios about this on the show earlier this week; he remains somewhat skeptical a major boom is coming, or at the very least says wait until February to see if the pace really is picking up or not.
But a friend of mine who works in the business says his firm has the biggest backlog of deals heading into this year that they've ever had. It's not to say that every industry will suddenly get a green light; for all the tech leaders close to Trump, his three choices of Andrew Ferguson (as the new FTC Chair), Mark Meador (as a new FTC commissioner), and Gail Slater (to lead antitrust at Justice) have all been critical of Big Tech, as Politico details.
But one area that could get very busy is on the banking front. Having 4,500 or so different banks in this country may not be sustainable, especially when 77% of them have less than a billion dollars in assets, per Raymond James. These deals may be on the smaller side and not garner big headlines; we've already seen small acquisitions in Idaho and Texas this week that have generally flown under the radar.
Indeed the mid-sized banks--and mid-sized companies in general--could see the biggest wave of activity. The typical mid-sized bank saw its share price jump 10% in the weeks after the election, per Barclays. There used to be 80 bank deals a year under the first Trump administration, they note, versus just 30 a year under Biden.
And yes, you could quibble over who might be the acquirer--whose share price tends to initially decline--versus the acquiree, whose shares typically pop when deals are announced. For that reason, investors love to get into sectors like biotech and small-caps when they anticipate a deal boom coming.
But Matt Miskin of John Hancock cautioned against that on our show yesterday, saying aside from being potential deal targets, small-caps are no longer the best way to play an economic re-acceleration. He prefers mid-caps, which are more profitable, will also benefit more from reshoring, and are less expensive than large-caps.
They would also benefit over time from a deal wave and more consolidation. Evercore is a midcap deal advisor that Morgan Stanley sees as a way to play the return of mergers and acquisitions. (Those shares are currently about 10% below their post-election all-time high.) Goldman is their choice if bigger deals make a return, and their guess is deals broadly will intensify towards the fourth quarter of this year.
Money Report
As for biotechs, the pace of deals has actually remained somewhat steady in recent years, but their size has dwindled. There were just $30 billion in deals last year, according to Leerink, down from a peak of $219 billion in 2019. In a sign that could be changing, we saw the biggest deal announcements since 2018 at the J.P. Morgan Healthcare Conference earlier this week (led by Johnson & Johnson).
And finally, watch for spin-offs. We've already seen a number of these, after GE "made them cool again," as Barron's aptly put it. The three GE spinouts have done quite nicely thus far, and Honeywell is now reportedly planning a similar move. FedEx is another one. (We're another, actually!) Wolfe Research says watch the parent companies as potential acquisition targets--historically, about 23% of them get acquired within 3 years.
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One thing is for sure--if mid-sized deals are where all the action is, there's much less reason for regulators to jump in and get involved than if one of the "Mag 7" tries to do a big, splashy acquisition.
See you at 1 p.m...
Kelly
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